Detroit’s Prophecy

By Rachel Alexander, on July 20th, 2013

Detroit’s bankruptcy is a sign of things to come.

Just the other day I noted a piece on The Daily Caller discussing Charles Krauthammer’s pronouncements on the Detroit Bankruptcy. His points recalled to my mind a not very memorable musical film that I saw years ago. In the closing scenes a young man and woman were heading for Detroit to make automobiles. As we know, the automobile industry became the foundation of the Detroit economy and helped to make it one of America’s largest and best known cities. But something went wrong.

At this point Krauthammer’s analysis and my own analysis of America converge. It was a matter of the automotive industry and the city it helped build believing that they were so successful and wealthy that nothing could get in the way of continued prosperity; that we could and would never run out of money. But bad business practices and unreasonable expectations were too much for Detroit to overcome. The United States, as a whole has the same problem.

At one time Detroit had the highest per capita income in the entire USA. Now its population has shrunk from over two million in the 1940’s to around 700,000. Portions of the city’s residential areas are vacant. Businesses have moved away. Public services are significantly non-functional. Drug use is rampant. The city has over 100,000 creditors and has immense pension obligations that cannot be met. The city’s solution is to ask for a federal bailout; money to bring themselves current, perhaps, after which they can continue their profligate ways.

A federal bailout would, under such circumstances, be a mistake. Making the same mistake over and over again is not going to solve the problem. Continued overspending cannot and will not get you out of bankruptcy and continuing the same process after completing legal bankruptcy will simply return you to the same position. What appears most likely from current commentary is that the city has little intention of mending its financial ways. In fact, we can look for declarations that the city cannot afford to stop spending. How this makes any sense, when it cannot afford to continue such spending, is beyond my comprehension.

As Ryan Spencer Reed put it, Detroit’s ruling class became a parasite that devoured its host. This is not a bad metaphor. After all, if the tax base could afford to continue paying enough to support Detroit’s spending habits the city would have had enough money. But too many rebelled and moved away to avoid taxation, which means that for them, the tax burden was too high. The result was inevitable, and a result of poor decision making on the part of the city government.

The above metaphor is also applicable to other governments; in particular the federal government. Detroit is not a statistical outlier, but a harbinger of likely things to come. It is the first major city to come to the logical end point of the welfare state mentality and resulting practices. Governments don’t produce value. At best, they provide services to preserve existing value, as is the case with police and fire. But the vast majority of government practices involve pushing paper and moving money around, for which they exact a piece of the action. Many regulatory agencies exist because of perceived needs rather than actual needs. And regardless, government agencies are a net cost on any economy because they don’t create goods or services that the public is generally speaking, willing to pay for. Otherwise we would see them available for purchase on the internet. In the end, if government spending gets sufficiently out of control, as Mark Steyn put is, it takes to looting the future to bribe the present; giving out money today to placate members of the public and charging it against future income from taxpayers who are, in many cases, not yet alive.

The important difference here between national and city governments lies in that national governments cannot file for bankruptcy. The US government passed the point of bankruptcy long ago, but because it can continue issuing “money” until the economy collapses it continues down its merry way, asserting that everything is fine, and it will continue to do so up until it is too late. After all, nothing can be allowed to come between the public and the belief that government is all-wise and all-capable; even when it isn’t.

Critics will ask what the purpose could be in such government practices. The answer lies in the desire for power and control. To borrow from Thomas Paine, today’s big government in Washington DC wants “to bind us in all cases whatsoever.” The fight against tyranny did not end with the Revolutionary War. It continues because we have allowed home grown tyranny to replace foreign. The worst part of it is that George III was in no way as capable as modern, democratically elected but not democratically governing, power grabbers.

Detroit isn’t the end of the story. Chicago is heading down the same path. Various locations in California, including Stockton, are having similar problems. Unfortunately, the city of Houston, near where I live, has between 8 and 9 billion in unfunded liabilities, mostly in pension and medical benefits. It isn’t far behind Detroit and is not following the example of its own state government in maintaining strict fiscal controls. Houston could hit the fan in a few years as well. Texas is likely to be flush with cash while its largest city goes down the financial tubes.

What America has needed for decades is fiscal responsibility. This has been true on a governmental and private level. The recent failures in the automotive and banking industries have been due to poor financial management, assumption of excess risks, and failure to recognize that actions today have consequences tomorrow. No one has unlimited wealth; not even the United States of America. The day of reckoning will arrive, sooner or later, unless we abandon the road to bankruptcy.